SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of
The Securities and Exchange Act of 1934
For the quarter ended . . . . . . . . . . . . . . . . . December 31, 2000
Commission file number. . . . . . . . . . . . . . . . . . . . . . . .0-9347
ALANCO TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Arizona 86-0220694
of incorporation or organization) Identification No.)
15900 North 78th Street, Suite 101, Scottsdale, Arizona 85260
(Address of principal executive offices) (Zip Code)
(408) 607-1010
(Registrant's telephone number, including area code)
Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.
YES XX NO___
As of February 1, 2001 there were 6,823,400 shares of common stock outstanding.
Forward-Looking Statements: Some of the statements in this Form 10-QSB Quarterly Report, as well as statements by the Company in periodic press releases, oral statements made by the Company’s officials to analysts and shareholders in the course of presentations about the Company constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words or phrases denoting the anticipated results of future events such as “anticipate,” “believe,” “estimate,” “will likely,” “are expected to,” “will continue,” “project,” “trends” and similar expressions that denote uncertainty are intended to identify such forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among other things, (i) general economic and business conditions; (ii) changes in industries in which the Company does business; (iii) the loss of market share and increased competition in certain markets; (iv) governmental regulation including environmental laws; and (v) other factors over which the Company has little or no control.
ALANCO TECHNOLOGIES, Inc. INDEX Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets December 31, 2000 and June 30, 2000 . . . . . . . . . 3 . Consolidated Statements of Operations For the three months ended December 31, 2000 and 1999 . . . . . . . . . . . . . . . . . . . . . .4 Consolidated Statements of Operations For the six months ended December 31, 2000 and 1999 . . . . . . . . . . . . . . . . . . . . . 5 Consolidated Statements of Cash Flows For the six months ended December 31, 2000 and 1999 . . . . . . . . . . . . . . . . . . . . . 6 Notes to Consolidated Financial Statements . . . . . . . . 8 Note A - Basis of Presentation Note B - Inventories Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . .. . . . . .9 PART II. OTHER INFORMATION Item 1. Legal Proceedings. . . . . . . . . . . . . . . . .. . . . .11 Item 6. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . .11 Signature . . . . . . . . . . . . . . . . . . . . . . . . .12
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND JUNE 30, 2000
December 31, 2000 June 30,2000 ------------------------------------ CURRENT ASSETS Cash $ 220,300 $ 176,700 Accounts receivable, net 2,044,700 1,078,300 Notes receivable, current 1,018,000 3,019,000 Inventories 1,321,600 1,112,700 Prepaid expenses 75,400 38,300 ------------- --------------- Total current assets 4,680,000 5,425,000 ------------- -------------- PROPERTY, PLANT AND EQUIPMENT, NET 562,200 628,600 OTHER ASSETS Intangible assets, net 1,492,300 1,558,000 Notes Receivable 973,700 560,000 Investment at cost 2,468,900 2,465,700 Net assets held for sale 617,000 770,900 Other assets 28,500 26,000 ------------- -------------- TOTAL ASSETS $ 10,822,600 $ 11,434,200 ============= ============== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accruals $ 1,310,600 $ 1,096,800 Bank line 250,000 498,500 Notes payable, current 88,300 868,100 Deferred gain, pollution control products 589,700 ------------- -------------- Total Current Liabilities 238,600 2,463,400 ------------- -------------- LONG TERM LIABILITIES Deferred gain, pollution control products 378,000 -- -------------- -------------- TOTAL LIABILITIES 2,616,600 2,463,400 SHAREHOLDERS' EQUITY Preferred Stock: Class A, cumulative convertible preferred stock; 5,000,000 shares authorized, of which 500,000 have been classified as Series B. Series B issued and outstanding of 270,000 at 9/30/00 1,136,500 1,040,000 Class B, cumulative preferred stock 2,000,000 authorized and none outstanding -- -- Common Stock, no par value, 100,000,000 shares 6,777,944 and 6,762,300 shares issued, respectively 55,750,600 55,738,300 Accumulated deficit (48,681,100) (47,807,500) ------------- -------------- Total shareholders' equity 8,206,000 8,970,800 ------------- -------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 10,822,600 $ 11,434,200 ============= ============== The accompanying notes are an integral part of these financial statements. 3
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, ------------------------------------------- 2000 1999 ----------------- ------------------- NET SALES $ 2,562,700 $ 645,400 Cost of goods sold 1,559,500 290,300 ---------------- ------------------- GROSS MARGIN 1,003,200 355,100 Selling, general and administrative 1,797,400 672,600 ---------------- ------------------- OPERATING LOSS (794,200) (317,500) Other income, net 23,000 1,500 ---------------- ------------------- LOSS - CONTINUING OPERATIONS (771,200) (316,000) Preferred stock dividend (56,500) -- ---------------- ------------------- LOSS - CONTINUING OPERATIONS ATTRIBUTABLE TO COMMON SHAREHOLDERS (827,700) (316,000) Operating income (loss) -Discontinued Operations (30,500) 81,000 Gain-sale of pollution control products 252,000 -- ---------------- ------------------- INCOME - DISCONTINUED OPERATIONS 221,500 81,000 --------------- ------------------- NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS (606,200) $ (235,000) ================= =================== EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED - Continuing Operations $ (0.12) $ (0.06) ================= =================== - Discontinued Operations $ 0.03 $ 0.02 ================= =================== - Net Loss $ (0.09) $ (0.04) ================= =================== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 6,777,900 5,616,700 ================= =================== The accompanying notes are an integral part of these financial statements. 4
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, -------------------------------------- 2000 1999 -------------------------------------- NET SALES $ 5,309,100 $ 645,400 Cost of goods sold 3,135,300 290,300 ----------------- ---------------- GROSS MARGIN 2,173,800 355,100 Selling, general and administrative 3,264,700 823,800 ----------------- ---------------- OPERATING LOSS (1,090,900) (468,700) ----------------- ---------------- Other income (expense), net 15,200 (4,700) ----------------- ---------------- LOSS - CONTINUING OPERATIONS (1,075,700) (473,400) Preferred stock dividend (56,500) -- ----------------- ---------------- LOSS - CONTINUING OPERATIONS ATTRIBUTABLE TO COMMON SHAREHOLDERS (1,132,200) (473,400) ----------------- ---------------- Operating income - Discontinued Operations 6,500 118,600 Gain - sale of pollution control products 252,000 -- ----------------- ---------------- INCOME - DISCONTINUED OPERATIONS 258,500 118,600 ----------------- ---------------- NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (873,700) $ (354,800) ================= ================ EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED - Continuing Operations $ (0.17) $ (0.08) ================= ================ - Discontinued Operations $ 0.04 $ 0.02 ================= ================ - Net Loss $ (0.13) $ (0.06) ================= ================ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 6,772,400 5,616,700 ================= ================ The accompanying notes are an integral part of these financial statements. 5
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months ended Dec. 31, ----------------------------------------- 2000 1999 ------------------ -------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss from continuing operations $ (1,075,700) $ (473,400) Adjustments to reconcile net income to net Cash provided by (used in) operating activities: Depreciation and amortization 197,700 160,100 Other -- 60,300 (Increase) decrease in: Accounts receivable (966,400) (187,000) Inventory (208,884) (200,600) Prepaid expenses and other assets (37,116) (24,600) (Increase ) decrease in: Accounts payable and accrued expenses 213,800 396,600 Billings in excess of costs and est earnings -- (75,200) ------------------ -------------------- Net cash used in continuing operations (1,876,600) (343,800) ------------------ -------------------- Income from discontinued operations 258,500 118,600 Net assets of disposed operations 153,900 -- CASH FLOWS FROM INVESTING ACTIVITIES Collection of notes receivable 1,587,300 -- Purchase of property, plant and equipment (59,300) (228,500) Intangible Assets, related to acquisitions (6,100) (551,600) Deferred Gain 967,700 -- Other (7,800) (22,700) ----------------- -------------------- Net cash provided by (used in) investing activities $ 2,481,800 $ (802,800) ----------------- -------------------- The accompanying notes are an integral part of these financial statements. 6
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months ended Dec. 31, ----------------------------------------- 2000 1999 ------------------ -------------------- CASH FLOWS FROM FINANCING ACTIVITIES Repayment on borrowings $ (1,028,300) $ (270,600) Issuance of Stock 3,300 845,900 Proceeds from sale of preferred stock 96,500 -- Dividends on Preferred Stock (56,500) -- Proceeds from exercise of options 11,000 325,000 ------------------ -------------------- Net cash provided by (used in) financing activities (974,000) 900,300 ------------------ -------------------- NET INCREASE IN CASH 43,600 (127,700) CASH AND CASH EQUIVALENTS, beginning of year $ 176,700 $ 661,700 ------------------ -------------------- CASH AND CASH EQUIVALENTS, end of quarter $ 220,300 $ 534,000 ================== ==================== SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION Cash paid for interest $ 32,100 $ 21,000 ================== ==================== Value of stock issued for services $ 3,300 $ 39,500 ================== ==================== The accompanying notes are an integral part of these financial statements. 7
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR SIX MONTHS ENDED DECEMBER 31, 2000
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-QSB. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with Generally Accepted Accounting Principles have been condensed or omitted. These interim consolidated financial statements should be read in conjunction with the Company's June 30, 2000, Annual Report on Form 10-KSB. In the opinion of management, the accompanying consolidated financial statements include all adjustments consisting of normal recurring accruals necessary to present fairly the financial position, results of operations and statements of cash flows as of December 31, 2000, and for all periods presented. The results of operations for the six months ending December 31, 2000, are not necessarily indicative of the operating results to be expected for an entire year.
All significant intercompany balances, transactions and stock holdings have been eliminated from the accompanying interim financial statements.
Note B - Inventories
Inventories have been recorded at the lower of cost or market. The composition of inventories as of December 31, 2000, and June 30, 2000, is listed below:
December 31, 2000 June 30, 2000 ------------- ------------- Finished goods $ 893,300 $1,008,100 Work-in-process 107,800 87,100 Raw material 320,500 17,500 --------- --------- $1,321,600 $1,112,700 ========== ==========
Note C – Sale of Assets
During the quarter ended December 31, 2000, the Company sold its subsidiary, Alanco Environmental Technologies (Beijing) Co., Ltd., and the patents related to Charged Dry Sorbent Injection (CDSI) technology to a private New Jersey corporation for $1,450,000. The transaction completed the sale of the Company's remaining Pollution Control Products assets.
The sales proceeds consist of cash and short-term notes with payments scheduled through July 2001 totaling $950,000, plus a $500,000 long-term note with scheduled annual payments through December 31, 2003. In addition, the Company will receive a cash royalty on each CDSI system sold for a period of five years.
The transaction resulted in a potential Gain on Sale of approximately $1.2 million, of which $252,000 was recognized during the current quarter with the remaining gain to be recognized upon receipt of future payments. At December 31, 2000, approximately $590,000 of the deferred gain is classified as current and $378,000 is classified as long-term.
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1. Results of Operations
In accordance with Generally Accepted Accounting Principles, the Company has limited its reported consolidated revenues for fiscal quarter and six months ended December 31, 2000 to revenues from its Computer Data Storage segment, the only operation classified currently as a continuing operation. To maintain comparability, certain balances from the Consolidated Statement of Operations and Consolidated Statement of Cash Flow for the respective periods ended December 31, 1999 have been restated.
(A) Three months ended 12/31/2000 versus 12/31/1999
Consolidated revenue for the quarter ended December 31, 2000 was $2,562,700, compared to $645,400 for the comparable quarter of the previous year. Consolidated revenue for the quarter ended December 31, 2000 includes revenues from Excel/Meridian Data, Inc. (“Excel/Meridian”), an acquisition that was effective in June of 2000. If that acquisition had been effective during the quarter ended December 31, 1999, comparative prior quarter revenues would increase by approximately $1,301,200 (proforma).
The Company reported a loss from continuing operations attributable to common shareholders for the current quarter of $827,700, or $.12 per share, compared to a net loss of $316,000, or $.06 per share, for the comparable quarter in 1999. The losses from continuing operations for the quarters ended December 31, 2000 and 1999 were attributable primarily to planned operating investments related to the implementation of the SanOne Storage Area Network (SAN) market development initiative, including significant additional marketing and sales staff added during the current quarter, as well as advertising and tradeshow expense in excess of $200,000.
The Consolidated Statement of Operations for the quarter ended December 31, 2000 reflected income from discontinued operations of $221,500, or $.03 per share, compared to income from discontinued operations of $81,000, or $.02 per share, for the comparable quarter in 1999. Included in income from discontinued operations for the current quarter is a gain on sale of pollution control assets of $252,000.
The net loss for the quarter attributed to common shareholders was $606,200 or $.09 per share, compared to a loss of $235,000, or $.04 per share, for the same quarter in 1999.
Gross Profit for the quarter amounted to $1,003,200, or 39.1%, compared to $355,100, or 55%, for the comparable quarter a year earlier. The increase in Gross Profit resulted from increases in sales while the decrease in Gross Profit percentage resulted from changes in product mix.
Selling, general and administrative expenses for the current quarter increased to $1,797,400, compared to $672,600 incurred in the comparable quarter of 1999. The increase is attributable to sales costs associated with the higher sales volume and the continued operating investment related to the implementation of the SanOne Storage Area Network (SAN) market development initiative.
(B) Six months ended 12/31/2000 versus 12/31/1999
Consolidated revenue for the six months ended December 31, 2000 was $5,309,100 compared to $645,400 for the comparable period of the previous year. Revenues for the six-month period ended December 31, 2000 include revenues from Excel/Meridian Data, Inc. ("Excel/Meridian"), an acquisition that was effective in June of 2000. If that acquisition had been effective during the comparable six-month period ended December 31, 1999, reported revenues for the six months ended December 31, 1999 would increase by approximately $3,094,500 (proforma).
The Company reported a loss from continuing operations attributable to common shareholders for the current six-month period of $1,132,200, or $.17 per share, compared to a net loss of $473,400, or $.08 per share for the comparable six months in 1999. The net losses from continuing operations for the quarters ended December 31, 2000 and 1999 were attributable primarily to planned operating investments related to the implementation of the SanOne Storage Area Network (SAN) market development initiative.
The Consolidated Statement of Operations for the six months ended December 31, 2000 reflected income from discontinued operations of $258,500, or $.04 per share, compared to income from discontinued operations of $118,600, or $.02 per share, for the comparable period in 1999. Included in income from discontinued operations for the current quarter is a gain on sale of pollution control assets of $252,000.
The net loss for the six months ended December 31, 2000 attributed to common shareholders was $873,700, or $.13 per share, compared to a loss of $354,800, or $.06 per share, for the same six-month period in 1999.
Gross Profit for the period amounted to $2,173,800, or 40.9%, compared to $355,100, or 55%, for the comparable six-month period a year earlier. The increase in Gross Profit resulted from increased sales while the decrease in Gross Profit percentage resulted from changes in the types of products sold.
Selling, general and administrative expenses for the current six months ended December 31, 2000 increased to $3,264,700, compared to $823,800 incurred in the comparable period of 1999. The increase in selling, general and administrative expenses is attributable to costs associated with the substantially higher sales volume and the continued operating investment related to the implementation of the SanOne Storage Area Network (SAN) market development initiative.
2. Liquidity and Capital Resources
The Company's current assets at December 31, 2000 of approximately $4.7 million exceeded current liabilities of $2.2 million by $2.5 million, and resulted in a current ratio of 2.1 to 1. At June 30, 2000 the Company reported current assets of approximately $5.4 million with current liabilities of $2.5 million, resulting in a current ratio of 2.2 to 1. The decrease in current assets resulted from collection of notes receivable related to the sale of Alanco Environmental Manufacturing, Inc. (completed effective June of 2000), offset by increases in accounts receivable and inventories. The decrease in current liabilities resulted from reductions in bank lines and notes payable, offset by increases in accounts payable and the deferred gain on sale of assets, (see Note C above).
Cash used in continuing operations for the six months was approximately $1,876,600, an increase of $1,532,800 when compared to cash used in continuing operations of $343,800 for the comparable six-month period ended December 31, 1999. The increase in cash used in continuing operations was due to increases in losses from continuing operations and increases in accounts receivable, inventory and prepaids, offset by an increase in accounts payable and accrued expenses.
During the quarter ended December 31, 2000, the Company renewed its formula-based Bank Line of Credit Agreement ("Agreement"). The new Agreement, which expires on December 26, 2001, increased the line of credit from $1.0 million to $1.5 million and reduced the interest rate to prime plus 1.0%. The entire $1.5 million line of credit was available at December 31, 2000. Management believe that cash balances and current bank lines are adequate to fund the Company's working capital needs for the next twelve months.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS - none
Item 6. EXHIBITS
(A) (27) Financial Data Schedule
(B) Reports on Form 8-K - none
(C) Reports on Form S-8 - 1 filed 12/14/00
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunder duly authorized.
ALANCO TECHNOLOGIES, INC.
(Registrant)
/s/John A. Carlson
John A. Carlson
Chief Financial Officer
Date: February 9, 2001